Saturday, May 5, 2012

Credit score, What’s all about?

I primarily use free or credit sesame for my credit alert and monitoring. There are some paid services credit score companies which earn you thousands of points/miles and I haven’t decided to take one yet as the paid services representing true FICO score than those free ones, like creditkarma or freecredit or credit sesame

Anyway, after a few credit cards opened and big chunk of $$$ charged to those cards lately, my credit lowered 20-30 points. Whew? Take it easy, relax. I will fix it and I will tell you HOW.
You can see that I am still “Good” as above 700, it means Lenders will consider your credit score satisfactory. You may qualify for new credit and loan offers, but they will likely not have the best rates. best rate? i don't need that, i need a YES or NO. er?

1.      Assumption

I’d point out first and again that you don’t want to apply a lot of credit cards if you are buying a house with mortgage, leasing a car, applying a loan and etc.. You need solid Grade A credit, above 740 to get the best rate. Chasing credit card sign-on bonus in the meantime will have impact of the rate you are getting. In China, we called it “in order to pick up sesame, you drop off watermelon”, Don’t do it.

2.      Credit score is short term

Normally, every hard acquire and credit card application will lower your score by 3-5 points, higher utilization of debts will lower even more. However, it’s short term and you need to monitor your credit score a few times a week and make sure they are above 700 in this case, once it’s getting closer to 700, stop the application and wait for it’s to recover, it will recover very soon. The reason why is if you are below 700, you have a good chance to get automatic declined by those lenders, you can call the reconsideration line of course, but wouldn’t it be nicer to get auto approval?

3.      What factors do impact score

a.      Open Credit Card Utilization: your goal is to keep it within 10% and it has a high weight of your credit
b.      On-time payment: should I say more? It’s super high weight
c.      History of credit: you’d like to keep your oldest card as many as you can, even sometimes you have to pay annually fee, as the history is avg based on your open accounts. The shorted, the lower the credit. If you have the avg >3 years, it’s a lot better.
d.      Hard inquires: even though it weights as low of your credit, my personal experience it is NOT. try to keep it within 3-4 every so often, I will suggest not apply for lots of cell phone plan via different carrier(stick to one), department stores, car dealers leasing quotations. Those will lower your credit, unless you have to.

4.      How to increase credit scores in a short term

There some ways to increase credit score rapidly, again, long terms, your credit will be self-heal, no concerns, okay.
a.      Pay the balance, if your utilization is >10%, keep them within 4-5% usually helps a lot. However, you need to understand it’s up to 30 days for the utilization reflecting to your credit report.
b.      If you know someone has decent credit(>740), if they are ok with help you, add you to one of their authorized user, it will lift your score very quickly.
c.      A big “no-no”, don’t cancel your very oldest credit card, it won’t help you, it will hurt you I promise you. You may want to use those card for a dinner or two just to keep them “alive”. I found it’s useful to dump credit rapidly.
You need to understand that there is no “magic” way to bump your score, say, X points by Y days, absolutely not, if anyone tells you and any paid increasing credit companies promised you, do not trust it. Credit score takes time to go up. However, if you keep the above a few hints, you can look at dump score by 20-30 points within 1-3 months. It also goes back to my #1 assumption that you don’t need >740 score to apply for mortgage/loans, if that’s the case, stop here, close my blog browser window. (don’t remove my blog from your bookmark , you just need it when your situation changed. LOL)

In a nutshell, you don't need very high credit score to apply those credit cards and enjoy the bonuses. why not take advange of your good credit? keeping 800 credit score doesn't fly you First class for free, those miles does. Right?

1 comment:

  1. From your article how to increase the CIBIL Score?. I got my car loan and house lone easily...